Businessweek Archives

The World War On Tobacco


Legal Affairs: HEALTH

THE WORLD WAR ON TOBACCO

Regulations are cropping up from Bahrain to Brazil

For centuries, Arab men have gathered in cafes to smoke tobacco through water pipes. But in August, the ancient pastime came to an end in the city of Abu Dhabi, in the United Arab Emirates (UAE). Declaring the pipe, known as a shisha, a public-health risk, municipal authorities banned them from public places. For local smokers, it has been a hard year. In late September, the UAE, Saudi Arabia, Kuwait, Oman, Bahrain, and Qatar announced joint plans to increase tobacco and cigarette duties by up to 100%. And in June, the six nations, members of the Gulf Cooperation Council, required reductions in nicotine and tar levels.

Abu Dhabi is just part of a surge in antitobacco regulation spreading out from the U.S. and across the globe. From Sao Paulo to Slovenia, new restrictions are being slapped on smokers almost daily. On Oct. 16, the Northern Chinese city of Tianjin instituted a citywide ban on smoking in public places, the 27th city in the country to do so since late 1994. A few days earlier, South African Health Minister Nkosazana Zuma scared major local manufacturers, including Rembrandt Group Ltd. and Imperial Tobacco Ltd., by threatening to ban tobacco advertising. If Zuma follows through on the threat, she'll be in good company: Mexico, Hungary, Latvia, Brazil, and Belgium are all considering, or have enacted, limits on tobacco ads.

While tobacco has always been highly regulated, the current international clampdown is unprecedented, says David Sweanor, senior legal counsel for Canada's Non-Smokers' Rights Assn. He attributes the new wave of restrictions to the world health community's steadily increasing concern about tobacco-related illness. On Sept. 15, the World Health Organization reported that tobacco-related deaths would triple by 2020, turning the leaf into the world's No.1 cause of death. "The pace of antitobacco regulation is accelerating worldwide," says Garfield Mahood, executive director of the Canadian nonsmokers' group. "Compared to where we were a decade ago, we're much further ahead."

That's bad news for international tobacco giants such as Philip Morris, RJR Nabisco, BAT Industries, Rothmans, and Imperial Tobacco. Even though the U.S., Canada, and Western Europe have been tightening restrictions on smokers for years, manufacturers have figured they could maintain growth by moving into the huge, booming markets of Asia, Eastern Europe, South America, Africa, and the Middle East. While consumption is declining by 1.5% annually in the U.S. and 2.3% in Britain, it's rising by 1.7% in the developing world.

EXPANDING. As the multinationals roll into these newly open markets, they are gobbling up market share by selling better-tasting cigarettes, attracting women smokers, and launching sophisticated ad campaigns. Smith Barney Inc. analyst Martin Feldman estimates that Philip Morris Cos.' 1996 operating income from international tobacco sales will be $4.14 billion, nearly equaling its domestic sales of $4.17 billion for the first time. Feldman expects international tobacco operating income to continue rising by 20% annually for the next several years--more than double even the most optimistic domestic forecasts.

But in the long term, the flood of international antitobacco rules could well dampen earnings. And if tobacco manufacturers become pariahs in the developing world, as they have in some developed countries, their decades-long record of uninterrupted growth could finally end. "Is it going to affect their bottom line?" asks Gregory Connolly, director of Massachusetts' Tobacco Control Program and a U.S. adviser on tobacco issues to the World Health Organization. "In five years, probably not. But it's going to catch up to them in 25 to 30."

The tobacco industry is answering the barrage of international broadsides with characteristic vigor. In countries such as Poland and Malaysia, manufacturers are circumventing ad bans by slapping their brand names and logos on clothing and restaurant awnings, as well as sponsoring rock concerts, fashion shows, and sporting events.

In Western Europe, where lighting up at restaurants, office buildings, and other public places is still more acceptable than in the U.S., Philip Morris earlier this summer launched a preemptive strike to prevent secondhand-smoking regulations. In a Western European ad campaign that backfired, Philip Morris suggested that inhaling secondhand smoke is less dangerous than eating a cookie or drinking milk. The campaign was banned from France after the National Union of Biscuit Makers and the National Committee Against Tobacco Use filed separate suits against Philip Morris.

TAX LOSS. Industry executives insist that international sales will continue to grow in spite of the increasing clamor over tobacco's risks. "It's something we've always had to deal with. We sell one of the most regulated products in the world," says Elizabeth Cho, a spokesperson for Philip Morris International Inc. And in the short term, at least, analysts agree. Because tobacco companies are now gaining access to many markets that were traditionally closed, they can continue to grow "even if the overall pie shrinks," says Marc I. Cohen, an analyst at Goldman, Sachs & Co. Also working in their favor are tobacco taxes, a critical source of income to governments in developed and undeveloped countries alike that officials will be reluctant to surrender.

But what's spooking manufacturers is that smoking restrictions are coming from places where smokers were generally allowed to puff in peace. In Nicaragua, a cigarmaking country, a law was passed this summer restricting cigarette sales to minors and increasing the size of warnings on packaging.

Poland, always a land of smokers, took the offensive against tobacco in May, passing a landmark law banning sales in sports arenas and street vending machines, prohibiting advertising on TV, radio, and in the cinema, and blocking the marketing of cigarettes in packs of less than 20. Even in smoke-loving China, where an estimated 39% of the world's cigarettes are consumed, officials announced earlier this year that they plan to ban tobacco advertising by 2000. But health officials concede that the move was partially motivated by a desire to protect the state-run cigarette industry, which doesn't advertise much.

Meanwhile, nations that have already aggressively restricted smoking, such as Canada, Australia, New Zealand, and Finland, are pioneering even tougher measures. Canada's House of Commons Standing Committee on Health has recommended that the country require all cigarettes to be marketed in plain packs devoid of all color, pictures, or logos. The only printing allowed on packages would be the health warning, the toxics, and the name of the brand in generic type. In Australia, a court in mid-October declared the inside of a tobacco shop to be a public place, a move which could prevent cigarette packages from being displayed inside stores.

Unlike in the U.S., antitobacco activists in other nations generally have focused on legislation rather than litigation. In Italy, the leading antitobacco group Italian League for the Fight against Tumors declined to back a groundbreaking personal-injury lawsuit against the tobacco industry brought by a Florence lawyer, believing it would be an ineffective tool in that country. The attorney sued the state cigarette monopoly following his father's premature lung cancer death. But with U.S. suits making headway, antitobacco litigation is starting to spread to other countries with faster and more efficient courts. In early November, 40 smokers plan to file what would appear to be Britain's first personal-injury lawsuit against cigarette manufacturers.

America's antitobacco ferment is also emboldening activists at the political level. "There was a fearfulness in taking on the tobacco industry in Asia, and now, the fortress is seen as crumbling," says Dr. Judith MacKay, director of Hong Kong's Asian Consultancy on Tobacco Control, which advises governments on health issues. In spite of staunch industry opposition, Hong Kong is considering tobacco advertising restrictions.

Just as important, America's growing rejection of cigarettes is also starting to tarnish what was once a symbol of glamour and success. "Cigarettes have been sold in much of the world as a very Western, and particularly American, thing to do," says Richard Daynard, chair of the Tobacco Products Liability Project, at Northeastern University. "To the extent that it ceases to be an American thing to do, that message will not be lost on Europe and the Third World." Judging from the current spate of antitobacco efforts, the message appears to be coming through loud and clear.By Mike France in New York, with William C. Symonds in Toronto, Monica Larner in Rome, Dave Lindorff in Hong Kong, and bureau reportsReturn to top


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus